2017 started well for one activist, at least. On January 3, Marathon Petroleum announced that it would accede to many of Elliott Management’s demands from less than two months earlier, likely avoiding a proxy fight as the already once-delayed nomination deadline approached. Shares rose 6.8% on the news, but have since lost some of their snap.
The activist may have offered kind words to Chairman Gary Heminger on account of his record at the helm, but it wasn’t satisfied with plans to drop down assets into its MLP on a three-year timeline. Instead, it argued for an immediate drop, reducing associated tax liabilities and uncertainty, as well as a reshuffling of its interest in the MLP and a breakup into three distinct business lines. The presentation, released on November 21, said shares could add $14-19 billion of shareholder value.
On Tuesday, Marathon Petroleum did much of what Elliott asked for. It will accelerate the drop downs to as soon as practicable, review a spinoff of Speedway, its gas station chain, and swap its incentive distribution rights (IDRs) in MPLX (the MLP) for LP units. All three are significant concessions – management had long argued the synergies involved in integrating Speedway were beneficial, and IDRs benefit disproportionately from rising distributions compared to LP units, so management is effectively saying it will subject itself to the same deal as minority holders (although it also owns the General Partner and will continue to control the MLP).
Moreover, the changes were enough to convince Elliott portfolio manager Quentin Koffey to commend the company, the activist saying in a joint statement that the moves would “be important elements of the value realization [Marathon Petroleum] continues to drive for its shareholders.”
The announcement may be the first Trump-related victory for an activist. Trump and his adviser, Carl Icahn, are thought to want to scrap the market in Renewable Identification Numbers (RINs), which favor refiners with large retail operations. Management had long said Speedway enjoyed synergies as part of the group, and Heminger sounded defensive when questioned on that topic by analysts this earlier week, but an overhaul of the Environmental Protection Agency might have been more important than the prospect of a duel with Elliott in making that change.
Article by Activist Insight
